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Organic Agriculture ……
Comparison to the Conventional Agriculture:
Still Viable?
Craig Chase, Field SpecialistFarm & Ag Business Management
Markets are changing
• Strongly-held belief: Organic production no longer has an economic advantage to conventional agriculture.
• Or restated… with higher corn prices you would be further ahead as a conventional C-Sb farmer.
• Response: Let’s develop some budgets for 2006-2010 and see what happens…
Yield Assumptions by Crop/Rotation
180
150
50
40
020406080
100120140160180200
C-Sb C-Sb-O/A-ARotation
bu
/acr
e
Corn
Soybean
Note: yield increased to 200 for 2010 conventional corn
Oat yields are 80 bushels
Alfalfa yields are 4.5 tons
1.0
1.8
0.0
0.5
1.0
1.5
2.0
C-Sb C-Sb-O/A-ARotation
hr/
acre
Labor Fieldwork Assumptions
Production Costs (exc labor and land)
0
100
200
300
400
500
600
2006 2007 2008 2009 2010
Years
Do
llars
pe
r a
cre C-C
C-Sb
C-Avg
O-C
O-Sb
O-Avg
Things to Note
• Conventional corn production expenses increased 75% in three years – organic corn expenses 43% in five years.
• Conventional rotational average production expenses increased 73% in three years – organic rotational average production expenses increased 36% in five years.
Bottom Line
• Production costs for conventional corn and soybeans is likely to continue to increase in volatility as well as show an overall dramatic increase (39% increase from 08-09).
• While organic production costs are increasing, they appear to be consistent and somewhat reasonable (5-10% increase per year).
Returns to Management
-200
0
200
400
600
800
1000
2006 2007 2008 2009 2010
Years
Do
llars
pe
r a
cre C-C
C-Sb
C-Avg
O-C
O-Sb
O-Avg
Inclusion of oats and alfalfa
• Strongly-held belief: inclusion of oats and alfalfa make the organic rotation not competitive with the conventional C-Sb rotation.
• Let’s take a look…
Return to Management
-150
-100
-50
0
50
100
150
200
250
300
350
2006 2007 2008 2009 2010
Years
Do
llars
pe
r a
cre
C-Avg
O-O
O-A
O-A Avg
Things to note…
• 2009 was a huge year for revenues for conventional corn and soybeans.
• Production expenses increased at a higher rate than revenue from 2008-09 for conventional corn and soybeans.
• The organic system had its highest economic return in 2008 led by corn, but hasn’t seen any negative or low numbers from 2006 on.
Focus on the right number…
• Just because you bring in more money doesn’t mean you are keeping any more of it yourself…
• So focus on economic returns, not prices or revenue... Family living and other personal bills are paid out of net returns not gross revenue.
Another look at returns to management
-200
-100
0
100
200
300
400
500
600
2006 2007 2008 2009 2010
Years
Do
llars
pe
r a
cre
C-Avg
O-Avg
06-10 Avg
C-$107
O-$328
Question…
• Can you withstand the wild swings in a conventional rotation? Rotation average return ranged from -$84 to $232.
• Organic rotation average ranged from $194 to $506.
• The average returns for the organic rotation is less variable (risky) than the conventional rotation.
So what does that extra $220 mean…
• 5% decrease in all yields would reduce net returns for each crop of:– $52 corn– $48 soybeans– $13 oats– $32 alfalfa– Total $145
What does that $220 mean…
• 10% decrease in all yields would reduce net returns for each crop of:– $103 corn– $96 soybeans– $26 oats– $63 alfalfa– Total $285
What does that $220 mean…
• Or a big yield hit in one of the crops…– 35 bu. corn (21%)– 11.5 bu. soybeans (23%) – 67 bu. oats (84%) – 1.6 ton alfalfa (36%)
Question becomes…
• Can you manage your production risks to reduce the likelihood of those kind of yield decreases?
• If so, you are likely to keep the economic advantage from producing organic crops.
Bottom Line
• Conventional prices and revenues are historically high.
• Fertilizer, pesticides, seed, etc. costs have increased dramatically reducing net economic returns to conventional production.
• Organic production is the classic risk/reward situation. You assume additional individual crop production and marketing risk to receive higher average returns.
Questions…..
Any questions or comments?
Thank You for This Opportunity!
Craig A. ChaseFarm Management Field Specialist
312 Westbrook LaneAmes, IA 50014(319) 238-2997
http://www.extension.iastate.edu/agdm/fieldstaff/cchase.html
